James H. Shelton, Deceased, and Eve Shelton - Page 2

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                Respondent determined a deficiency in petitioners' 1992                      
          Federal income tax in the amount of $3,471, and an accuracy-                       
          related penalty under section 6662(a) in the amount of $694.                       
          Following concessions by respondent, the issues for decision are:                  
          (1) Whether petitioners properly reported cost of goods sold on a                  
          Schedule C relating to a business conducted by James H. Shelton;                   
          (2) whether, with respect to James H. Shelton's business,                          
          petitioners are entitled to various Schedule C business expense                    
          deductions in excess of those allowed by respondent; and (3)                       
          whether petitioners are liable for the accuracy-related penalty                    
          under section 6662(a) for the year 1992.                                           
          Background                                                                         
                Some of the facts have been stipulated and are so found.                     
          The stipulation of facts and the exhibits attached thereto are                     
          incorporated herein by this reference.  During the year in issue,                  
          petitioners were husband and wife and filed a joint Federal                        
          income tax return.  At the time the petition was filed in this                     
          matter, petitioners resided in Koshkonong, Missouri.  References                   
          to petitioner are to James H. Shelton.                                             
                In 1992, petitioner was employed as a professor of physics                   
          at Sierra Academy (Sierra), a community college located in                         
          Oakland, California.  Also in 1992, petitioner was engaged in                      
          what he described as an "education business."  Petitioner's                        
          education business was composed of two distinct components:                        






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